Index Number Biases During Price Liberalization

Author/Editor:

Kent Osband

Publication Date:

August 1, 1991

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

When a formerly centrally-planned economy frees prices and allows or compels producers to respond to market signals, conventional measures tend to severely overstate short–run output decline and inflation. In part the overstatement stems from neglect of private sector activity, or from belated recognition of inflation previously disguised as quality improvements. Even when individual prices and outputs are correctly measured, however, shifts in relative prices consequent to price decontrol create a serious aggregation problem. Moreover, the standard indices ignore the deflationary trends in black markets. Superior growth and inflation indices are devised using a combination of official and black market prices.

Series:

Working Paper No. 91/76

Notes:

Also published in Staff Papers, Vol. 39, No. 2, June 1992.

English

Publication Date:

August 1, 1991

ISBN/ISSN:

9781451849776/1018-5941

Stock No:

WPIEA0761991

Format:

Paper

Pages:

33

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